How do large-scale economic and political transformations, such as the collapse of communism in the former Soviet bloc, affect perceived welfare? In a new working paper, we show that income gains in the post-communist region have failed to translate into convergence in life satisfaction.
Although scholars have acknowledged that transition has been an unhappy process, the expectation was that economic and political reform would eventually be rewarded. This prophecy has not come true yet. For example, Ukraine and Russia are consistently found near the bottom of rankings of life satisfaction, with scores lower than those of countries like Bangladesh and Senegal. Armenians, Bulgarians, Georgians, Moldovans and Serbians are less happy than Peruvians and Indians. Hungarians are less happy than Kosovars and Mongolians. Why, then, as economic advancements are materializing for most countries, are the psychological benefits lagging behind? Read more
China’s ruling State Council last month released a much-anticipated plan meant to kick the country’s huge state-owned enterprise (SOE) sector into shape. No small amount of kicking is required. Not all but many of China’s 155,000 SOEs are inefficient and often loss-making. Where SOEs do make money, it’s usually because of markets and lending rules rigged by the government in their favor.
Finding a truly good SOE, one that can take on and outcompete private sector rivals in a fair fight is hard. Gong He Chun is one. Customers throng daily to buy its high-quality products, often forming long queues. The employees, unlike at so many SOEs in China, are helpful and enthusiastic and take evident pride in what they are doing. Though local private sector competitors number in their hundreds, Gong He Chun has them all beat. Read more
With its 34tn cubic metres of natural gas, enough to satisfy current EU natural gas demand for 90 years, Iran has the biggest gas reserves in the world. Despite this rich natural endowment, the country has not yet translated potential into reality. Paradoxically, its natural gas production continues to be barely sufficient to satisfy its own domestic consumption.
There are two reasons for the under-exploitation of Iran’s natural gas resources: the international sanctions regime (which has targeted the country’s energy sector since 2007, completely halting the activities of international energy companies) and the country’s legal petroleum framework (the so-called ‘buyback scheme’, encumbered by very unattractive terms for international energy companies). Read more
In Nigeria, pensions and infrastructure development are not often mentioned in the same sentence, but this week as Africa’s finance and pension industry leaders gather in Nigeria for the second edition of the World Pension Summit: Africa Special, the focus will be on how the nation’s growing pool of pension funds can be mobilised to drive sustainable development.
Compared with many of its African peers, Nigeria has relatively advanced infrastructure networks that cover extensive areas of the nation’s territory and, thanks to its strong economy, it is better placed than many of its neighbours to increase the share of fiscal resources going to infrastructure. Yet, according to the African Development Bank (AfDB), the nation’s core stock of infrastructure is estimated at only 20-25 per cent of GDP, compared with 70 per cent for other middle income countries of its size, leaving a gaping infrastructure deficit of $300bn. Read more
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I am the leader of a country of Muslims and Christians living in religious fraternity and with a proud history of the salvation of Jews during the Second World War.
I am the leader of a country, Albania, that, for all the problems we face, has made great strides in showing what a harmonious multi-faith nation can be. The highlight of my premiership so far was a visit a year ago to our capital city by Pope Francis. As people of all faiths and none came out to welcome him, I was proud to be Albanian, I was proud to be from the Balkans.
I believe that very moment in the Balkans had a broader significance, in terms of the enormous challenges we all face together. Read more
By Andrew Colquhoun, Fitch Ratings
The decline in global foreign exchange reserves thus far in 2015 may add to macro-economic pressures on emerging markets (EM), but it does not directly risk a “quantitative tightening” effect on developed markets (DM).
EM sovereign foreign exchange reserves fell by US$189bn between end-December 2014 and end-June 2015, according to IMF and Chinese data compiled by Fitch. The biggest declines were in China (down US$149bn) and Saudi Arabia (down US$60bn), partly offset by increases in other countries, led by India (up US$35bn). More timely data from some countries, including notably China suggest the drain continued in July and August.
Fitch estimates about US$100bn of the decline to June may have been caused by valuation effects, based on the 4.3 per cent trade-weighted appreciation of the US dollar in the first half of the year. Nonetheless, some of the decline will reflect genuine draw-down by EM central banks. Read more
A $300m loan to help Ukraine fill its gas storage facilities before winter has today been approved by the EBRD’s board of directors.
The loan will enable Naftogaz, the state-owned oil and gas company, to purchase over 1bn cubic metres of gas (bcm) and so support Ukraine in reaching its target of having 19 bcm of gas in storage. It will also help the country diversify its sources of gas supply by financing purchases from its interconnections with Europe through the so-called reverse flow.
What is more, it is crucial for the wider Europe: a stronger energy security situation in Ukraine, which is still a key transit country, especially for south-eastern Europe, helps to ease a number of European energy security concerns. Read more
“Europe is being overrun by millions of people. We are facing a real danger. Those who are besieged cannot take in anyone. Hungary and Europe as a whole are in danger!”
This is how Viktor Orban, Hungary’s prime minister, announced a ‘state of war’ in Budapest on September 21. Today, he will deliver a similar message to the UN General Assembly in New York. Read more
By John Heathershaw, University of Exeter
Central Asian democracy was dealt another critical blow this month, in open defiance of Western efforts and engagement.
It is clear that the United States and Western powers have abandoned political engagement in Central Asia in the face of a resurgent Russia and the increasing significance of China as creditor, investor and patron.
If ever there were evidence that Western states’ calls for development and democracy in Central Asia are now only heard in an echo chamber, the story of the demise of Tajikistan’s Islamic Revival Party (IRPT) is it. Read more
Emerging economies have little to be cheerful about these days, and while it wouldn’t do to put all the blame on China, what’s going on there makes for some grim economic weather.
China has embarked on an irreversible transition from rapid, investment-led growth to slower, more balanced growth; a transition that is utterly necessary in order for China to avoid a financial crisis of its own.
But the result is that China now just needs less of the stuff – commodities and intermediate manufacturing inputs – that it had previously been happy to buy from other developing countries. China’s sunshine has given way to cloud. Read more
One of the hottest topics for discussion at the United Nations General Assembly this week isn’t even on the official agenda. By the time of next year’s annual gathering the UN is expected to have chosen a new Secretary-General to replace Ban Ki-moon, who completes his second and final term shortly afterwards. The names of potential candidates, the qualities expected of them and even the rules of selection are now part of an intense debate that will take months of horse-trading to resolve.
Among those with a major stake in the outcome are the countries of Eastern Europe, the only one of the UN’s five regional groupings never to have held the job. Sidelined during the long decades of the Cold War and the post-communist transition, these countries feel that they deserve recognition for their success in transforming themselves into strong and independent nation states. What better way to throw off the past and confirm their new status than for one of their number to claim the World’s top diplomatic post? Read more
Commodity prices could well have further to fall, now China’s business model has changed. It is no longer aiming to achieve high levels of economic growth by operating an export-focused development model, supported by vast infrastructure spending. Instead, its New Normal policies aim to boost domestic consumption, by creating a services-led model based on exploiting the opportunities created by the power of the internet.
The only problem is that markets have failed to notice this change. They have fallen victim to the phenomenon of “anchoring” as identified by Nobel Prizewinner Daniel Kahneman, and assume the New Normal is similar to the Old Normal. Thus, much analysis on commodity markets still focuses on guessing “when will the rally begin?” Read more
This weekend Narendra Modi, India’s prime minister, came to Silicon Valley to promote his Digital India initiative. His trip signals that the Indian government sees technology as critical to delivering on its development goals. One example is a programme called Pradhan Mantri Jan-Dhan Yojana (PMJDY), which Modi launched to ensure that all Indian citizens have access to financial services.
In the last year, the government has opened 175m bank accounts under the scheme, with deposits totalling more than $3.4bn. This progress is already a triumph of technology. Read more
The UN summit to agree the Sustainable Development Goals (SDGs) takes place against a depressing background. Seemingly every day there are new scenes of crisis, poverty, human displacement and environmental damage somewhere in the world. The urgent need for a concerted global effort to tackle the root causes of these disasters by promoting sustainable development has never been stronger.
Nor can anyone doubt the hard work that has gone into drawing up the 17 goals and ensuring that they focus on all that needs to be done. But it is this comprehensive nature – and the 169 sub-goals – which sets tough challenges for individual countries. Read more
As multilateral development banks (MDBs) gear up to fill serious gaps in infrastructure in Asia and elsewhere, attention also focuses on safeguards used to deflect potential spillover damages to communities, habitats and livelihoods from such large-scale projects. The value of such protection is at an all-time high because of the heightened fragility the environment and society face today—as the United Nations’ new Sustainable Development Goals emphasise.
Indeed, safeguards should be a top concern for established lenders such as the World Bank and the Asian Development Bank and for two new lenders: the Asian Infrastructure Investment Bank and the New Development Bank set up by the Brics countries. While the borrower is responsible for implementing these defences, the lender must be accountable for robust checks on the projects financed. Read more
When world leaders meet this week for the UN’s general assembly to adopt the Sustainable Development Goals (SDGs), they will also call for a “data revolution”. In a world where almost everyone will soon have access to a mobile phone, where satellites will take high-definition pictures of the whole planet every three days, and where inputs from sensors and social media make up two thirds of the world’s new data, the opportunities to leverage this power for poverty reduction and sustainable development are enormous. We are also on the verge of major improvements in government administrative data and data gleaned from the activities of private companies and citizens, in big and small data sets.
But these opportunities are yet to materialize in any scale. In fact, despite the exponential growth in connectivity and the emergence of big data, policy making is rarely based on good data. Almost every report from development institutions starts with a disclaimer highlighting “severe data limitations”. Like castaways on an island, surrounded with water they cannot drink unless the salt is removed, today’s policy makers are in a sea of data that need to be refined and treated (simplified and aggregated) to make them “consumable”. Read more
Connecting the dots between disparate trends can help unearth surprising opportunities in emerging markets. In our view, the impact of infrastructure investment on healthcare is a little-known link with big implications.
India provides a fascinating case study. Last year, the new government led by prime minister Narendra Modi set an ambitious target to increase national highway construction from two kilometres a day to 30 kilometres a day within two years at a cost of five trillion rupees. We believe the biggest impact can be found beyond the obvious. In our view, improvement in healthcare will enjoy a huge boost from the highway campaign because better roads make it much easier – and cheaper – for hundreds of millions of rural workers to access better doctors, clinics and hospitals. Read more
By Wolfgang Lehmacher and Victor Padilla-Taylor, World Economic Forum
In October 2012, Wang Jisi – professor at Beijing University – urged China to re-open its ancient commercial trade routes with the West. In 2013, China’s President, Xi Jinping proposed to its neighbors the “One Road, One Belt” initiative. China’s aim? To achieve $2.5tn in additional annual trade with the nations along the proposed routes over the next 10 years.
What is the current state of the project and how likely is it to succeed? Read more
Ukraine’s debt restructuring plan, announced last month, is both revolutionary and evolutionary. The agreement to restructure $18bn of privately held government debt stands in stark contrast to Greece’s nearly apocalyptic showdown with the European Union this year and Argentina’s simmering standoff with holdout creditors. Ukraine’s deal showcases two important evolutionary steps: a rare case of successful investor-state coordination and the latest application of equity principles in sovereign finance.
Today, Ukraine’s parliament votes on this milestone deal. Facing an internal armed conflict and a deep economic recession, Ukraine is in dire need of debt relief. The restructuring terms include a 20 per cent haircut and a four-year maturity extension, providing Ukraine with much-needed breathing room. Yet the agreement’s favourable terms for creditors saw Ukraine’s sovereign bonds rally immediately following its announcement. Major turning points—east or west, deal or default—hang in the balance with today’s vote. But the fate of Ukraine’s debt deal also has serious implications for the broader world of sovereign finance. Read more
By Chandran Nair, Global Institute for Tomorrow
The idea that a world of limitless connectivity, spreading democracy and freer markets promotes convergence and endless possibility may be fashionable, but it is far from the complete picture.
There is little appreciation that this idea is instead leading to a great “era of divergence,” as we see an expanding split between the lofty ideals of Western liberal thinking and the reality in much of the developing world. Possibility may be “limitless”, but the question remains: “limitless possibility” for whom? Read more